DIVORCE FOR BUSINESS OWNERS CAN BE MESSY – HAVE YOU PLANNED FOR THE POSSIBILITY?

A STRONG marriage is based on good teamwork – and so is a good divorce!

Clients rely heavily on the efforts of lawyers and other professionals, who have to collaborate closely to deliver the desired outcome.

But divorce can nevertheless become seriously tricky, often when children are involved and also when one or both spouses own or manage a business.

Here is some useful information for business owners:

Two’s company

Many business owners remain unaware their partner may be entitled to some share in their company, even if they have never been involved in the day-to-day activities of running it. The likelihood of this situation grows with the length of marriage, or inequality in financial resources.

In the UK, for the court to consider a ‘fair’ division of all your assets, everything will be taken together in one lump, with little distinction made between assets, unless you have legal documentation to prove a different position.

Divorce can be bad for business

Dealing with a family business during the divorce process often raises many complex issues, starting with its valuation, inheritance wishes, financial contributions, dividend payments and the shares or interests of other family members.

The court will hope to protect a family business from becoming too involved in a divorce, to avoid breaking it up or even selling it off to raise sufficient funds to pay the court settlement.

Alternatively, one of the divorcing couple may have to buy out the other if they have a share in the company, or liquidate assets to achieve the same outcome. All of this can be messy and time-consuming, often having a negative impact on the company’s performance.

Many businesses don’t have sufficient capital or assets in reserve to achieve a clean break. In these circumstances, the resultant pressure to sell will very often signal the end of the business – which can be a consideration for the courts.

It is not uncommon for newly divorced partners to have to work together until the business can be sold, which brings a whole new series of challenges – to achieve the maximum sale price will need the pair to work successfully together and make jointly beneficial decisions!

Prenuptial agreements

Prenuptial agreements are a difficult topic for many couples as they can be viewed as pessimistic. That may be, but they are nevertheless essential for any husband and wife owned business.

The agreement is not just about the relationship between the owners, but also about the future of the business, its reputation, its employees, its investors (if there are any) and its clients and customers.

A Founder’s Agreement is a good place to start as this sets out formally how the founders of a business are going to operate it. The document can avoid any disputes or misunderstandings which could threaten the business in the future. In the UK, this document will typically be in the form of a Shareholders Agreement.

Leave emotion at the door

The time to discover your business has not been set up with the correct agreements is not when divorce lawyers are looking to get it valued in readiness for a sale – good preparation will ensure a more amicable divorce, with everyone aware what’s at stake.

Whether your relationship is strong and long, or if it is becoming tense, now might be a good time to have a chat with one of our solicitors to understand your position.

We can leave emotion aside and call on the services of a wide range of specialist lawyers, from our family and corporate teams, to advise and protect your position.

In the first instance, please contact our Head of Family solicitor, Laura Lambert, on (01782) 646320, or email her at lauralambert@rjssolicitors.com